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Ontario 


Annual 


Energy 


Report 


Board 


Fiscal Year Ended 


• - 


March 31, 1987 


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Cover Photograph: 

Pickering Park with Pickering Nuclear 
Generating Station in background— an 
illustration of nature undisturbed by the 
need to produce energy. 



Copies of this and other Board publications 
may be purchased from the Ontario Government 
Bookstore, 880 Bay Street, Toronto; 
Telephone (416) 965-2054. 

Out-of-town customers please contact 
The Ministry of Government Services, 
Publications Services Section, 
5th Floor, 880 Bay Street, 
Toronto, Ontario M7A 1N8 

Telephone: (416) 965-6015 

Toll Free Long Distance: 1-800-268-7540 

Northwestern Ontario: 0-Zenith 67200 



Photograph of Board Members: 

Gadi Hoz Photographies 

Photographs of Board Hearings: 

Craig Butler 

Photographs of Natural Gas Installations 
and Users: 

Union Gas Limited 

Hydro Photographs: 

Ontario Hydro 



ISSN 0317-4891 



Table of Contents 



Letter from the Minister of Energy, 

The Honourable Vincent G. Kerrio 3 



Message from the Chairman, 

Robert W. Macaulay 5 



Introduction: 

Natural Gas and Electricity in Ontario . 



Natural Gas Company Statistics and Map 



The Ontario Energy Board: 

Its Role and Responsibilities 10 



Activity Review 13 

Selected Case Summaries 16 

Cost Awards to Intervenors 26 



Appendix I — The Public Hearing Process 27 

Appendix II -Board Organization 29 

Appendix III - Organization Structure 30 

Appendix IV - Glossary of Terms 31 




Energy 
Ontario 



Minister Ministry 56WellesleySt.West 

t 12th Floor 

Toronto, Ontario 

Energy M7A 2B7 

416/965-4286 
Telex 06217880 



The Honourable Lincoln M. Alexander 
Lieutenant Governor of the 
Province of Ontario 



I hereby submit the annual report of the Ontario Energy Board. It reviews the events and 
activities of the fiscal year 1986-87. 



Respectfully submitted, 




jlaAa^t> 



Vincent G. Kerrio 
Minister of Energy 



Digitized by the Internet Archive 
in 2013 



http://archive.org/details/annualreportonta1987onta 



Message from the Chairman 



The past fiscal year has been one of the 
most dynamic in the history of the natural 
gas industry in Ontario. Decisions issued 
by the Ontario Energy Board in this year 
may well set the pattern for the industry 
for the next decade, and perhaps for 
decades to come. 

There have been many positive develop- 
ments at the Board in 1986-87. 1 am pleased 
to report that in several areas we have 
strengthened our resources and expanded 
our lines of communication to include a 
range of organizations and information 
networks. 

A regulatory agency in the energy field 
today deals with extremely complex and 
technical matters. Thus, individuals of the 
highest calibre, with many years of experi- 
ence related to the energy industry, are 
needed. Our Board is fortunate in drawing 
such individuals from universities, indus- 
try and government. 

Because we demand the best, the recruit- 
ment process is rigorous. In these efforts 
and others, we are assisted by the Ontario 
government. While 1 could never mention 
all the people who directly and indirectly 
facilitate the smooth operation of the Board, 
I would be remiss if I did not acknowledge 
the support and co-operation we have 
received from the Minister and Deputy 
Minister of Energy during the past fiscal 
year. 

This year there has been a particularly 
strong emphasis on strengthening Board 
resources and research staff, and in en- 
suring that there is continuing exposure 
to the latest developments in the industry. 



Extensive information-sharing programs 
have been developed, both formal and 
informal. A visiting speaker series pro- 
vides seminars on a variety of subjects. We 
have also established information net- 
works with officials in other provinces, the 
National Energy Board, the Ministry of 
Energy, Mines and Resources for Canada 
and key U.S. states. In this way the Board 
is informed of developments as they occur 
and we are able to provide information 
on our own activities. 

We have developed a special relationship 
with Ontario universities and are now 
working on establishing some joint funding 
of theses by selected PhD students across 
the province. This will ensure that impor- 
tant background research essential to the 
regulation of public utilities will be per- 
formed. We engage students for limited 
periods of time so that they acquire on- 
the-job experience. As I perceive it, this 
Board has a duty to contribute to the 
education and training of professionals in 
this field, since we may later benefit 
from their expertise and understanding of 
our role. 

In this respect, a program is also being 
developed to provide for exchanges of per- 
sonnel between the Board and a number 
of professions such as law, engineering 
and accounting. 

The Ontario Energy Board was one of the 
founding members of the Council of Cana- 
dian Administrative Tribunals (CCAT). I 
am pleased to report that this year's second 
annual conference was a success, with 
increased attendance from boards, commis- 
sions and tribunals located throughout 
Canada at both the federal and provincial 
levels. These conferences provide a forum 
for an exchange of ideas and experiences 
of those involved on a day-to-day basis 
with administrative law at the decision- 
making level, and create an opportunity 
for members to meet on an informal basis 
in an educational setting. 



Our commitment to exchanging informa- 
tion has necessitated some travelling during 
the year, particularly to the producing 
provinces. We felt it was essential to com- 
municate the basis of our decisions to 
those affected, and to learn first hand 
about the experience of the producing 
provinces under the Agreement on Natural 
Gas Markets and Prices. Now, more than 
ever in this period of change, it is impor- 
tant to keep the lines of communication 
open. 

For this reason, a newsletter is planned 
for the next fiscal year. To be issued on a 
regular basis, it will explain how we 
operate, discuss major events and develop- 
ments in the industry, and review recent 
decisions and pending hearings. 

The year of transition following the Agree- 
ment on Natural Gas Markets and Prices 
ended in November, 1986. This transition 
year and the subsequent months have 
seen a gradual movement to more market- 
oriented pricing and marketing. While gen- 
erally held to be a desirable goal, this has 
led to considerable uncertainty for all seg- 
ments of the industry, from producer to 
consumer. 

Distributors have retained their monopoly 
over the transportation of natural gas; 
however, they no longer have a monopoly 
over the sale to end-users. 

During the year the Board moved quickly 
to implement the new policies stemming 
from the Agreement, and through its deli- 
berations and decisions, to ensure those 
policies were put in place within the con- 
text of current legislation. It is perhaps 
not surprising that some Board decisions 
were controversial ones. 



In considering the role of the Ontario 
Energy Board, it is important to be aware 
of the origins of utility regulation. Early 
in this century, utility companies realized 
that the costly installations and facilities 
required for gas delivery made competition 
prohibitively expensive. Smaller companies 
merged into larger entities to assume 
control over a designated area through 
franchise agreements reached with local 
municipalities. In effect, natural mono- 
polies came into being. As the industry grew 
and expanded, it became obvious that 
these monopolies needed to be scrutinized 
by an impartial body to ensure that the 
public interest was observed and protected. 

This is still the function of the Ontario 
Energy Board: a Board hearing is a fair, 
effective, and impartial forum at which 
members of the public can air their views 
and concerns. 

When the environment in which the indus- 
try operates changes dramatically, as it has 
during this past year, the regulatory pro- 
cess must be able to meet the new chal- 
lenges. Board decisions will sometimes be 
controversial or contentious. Our respon- 
sibility is to protect the public interest 
within the context of current national and 
provincial policies and legislation. It must 
be recognized that this may occasionally 
cause some dislocation in the industry, at 
least in the short term. Equally, the regu- 
latory process must change to accommo- 
date the market and other forces that 
affect it. 

Regulation need not, however, be 
adversarial. The process must rest in part 
on trust. The objective of both regulators 
and regulated should be the efficient func- 
tioning of the system. Mutual respect is 
particularly important when the changing 
environment places excessive strain on all 
parties in the system. 



My concept of the policy changes that 
have affected gas marketing and pricing 
in the past year is that they have changed 
the nature and direction of regulation, but 
have not removed the need for it. 

I believe that in the next few years, 
industry and relevant government bodies 
will resolve the question of separating gas 
marketing from gas transportation. The 
role of brokers in marketing gas will be 
dealt with. Questions to be considered 
include whether new legislation should 
allow them total access to the Ontario 
market, or whether and how their in- 
volvement should be restricted. 

When we examine this, we will examine 
whether residential customers as well as 
industrial and commercial customers should 
be served by brokers, and if so, the terms 
and conditions that should apply. Deci- 
sions will also need to be made as to 
whether some segments of the market 
need special protection; and if so, whether 
this is an appropriate responsibility for a 
regulatory agency. 

Obviously, these questions cannot be 
answered solely by a consuming province 
such as Ontario. Energy regulation and 
the direction it will take have nation-wide 
implications, with consuming provinces 
benefitting from lower costs and producing 
provinces expressing some reservations 
about the speed and the extent of changes 
in regulation resulting from the 1985 Agree- 
ment on Natural Gas Markets and Prices. 
In any case, the Board will endeavour to 
respond to changes as they occur— and if 
there is one element of certainty in this 
industry, it is that there are more changes 
ahead. 

During the year in review the Board issued 
several major decisions that will have long 
term implications. Selected decisions are 
discussed in detail in the pages of this 
report. 



While regulation of the natural gas indu 
try captured much public attention and 
occupied much of the Board's time durir 
the past year, the Board's other major 
responsibility, to review Ontario Hydro's 
rate proposals and make recommendatior 
was not in any way lessened. A summa 
of our findings in 1986-87 is included ir 
this report. 

In all, some 1000 applications were pro- 
cessed during the year, many without 
formal hearings. Throughout the year, in 
our activities and deliberations, we relie 
heavily on the professionalism and dedic 
tion of our staff. On behalf of all Board 
members, I wish to thank the staff for ii 
outstanding service in a particularly 
demanding and challenging year. 

Several members of the Board complete 
their terms or resigned during the year. 
During their terms of service they made 
many valuable contributions to the regi 
latory process in this province. We offei 
our sincere thanks and best wishes to Jo! 
Shurie, Donald Thornton, Patrice Boissea 
Richard Perdue and Marie Rounding. 

Looking ahead, I am confident that as \ 
continue to explore the ramifications of 
the changes taking place, we will see po 
tive developments in the pricing and 
marketing of gas, some clarification of 
complexities, and a new understanding 
and acceptance of the responsibilities o 
both the regulators and the regulated in 
this vital industry. 




Robert W. Macaulay, Q.C. 
Chairman 



Ontario Energy Board Members 




Standing, left to right: 

Malcolm Jackson, 
John K. Shurie, 
Mervin A. Daub, 
Joseph A. Dekort, 
Donald H. Thornton, 
Patrice E. Boisseau, 
Richard R. Perdue 
Denis A. Dean, 
Carl A. Wolf 



Seated, left to right: 

John C. Butler, 
Marie C. Rounding, 
Robert W. Macaulay, 
Candace U. Craddock, 
OrvilleJ. Cook 



introduction: 

Natural Gas and Electricity in Ontario 






Ontario relies heavily on natural gas as 
an energy source and as a feedstock, pri- 
marily in the production of chemicals. 
Natural gas is the major fuel for all sectors 
of the economy except transportation, and 
it is the primary fuel for space and water 
heating in homes and institutional and 
commercial buildings. 

Ontario's use of gas is the largest of the 
consuming provinces, accounting for 
approximately 33 percent of the total 
demand for Canadian natural gas. Because 
of the dependence on this source of energy, 
its impact on industrial competitiveness, 
and the limited capacity to switch to alter- 
nate fuels, the cost and availability of 
natural gas are vital concerns. 



Electricity provides approximately 17 percen 
of the total energy consumed in the pro- 
vince, and its use is growing. In the past 
ten years the consumption of electricity 
has increased by nearly 40 percent. Thus 
electric power planning for the future is 
crucial. The Ontario Energy Board has a 
role to play in this process. 

The Ontario Energy Board regulates the 
natural gas industry in a variety of ways 
including rate setting, approval of fran- 
chise agreements and authorizing the 
installation of transmission lines. The 
Board also acts as an advisor to the Min- 
ister of Energy on matters relating to the 
natural gas industry as well as Ontario 
Hydro. The Board makes recommendation 
with respect to any proposed Hydro rate 
increases. Several of these responsibilitie 
are described later in greater detaiir - ; 




A hydro transmission line is constructed in 
northern Ontario. 



Laying pipeline for natural gas near Cambria\ 
crossing the Grand River. 



Natural Gas Distribution in Ontario 




□ CONSUMERS' GAS 

□ UNION GAS 

□ iCG 



Highlights of Three Major Gas Utilities under Board Jurisdiction 





Year 




Average 


Gas Sales 


Average 


Number of 


Firm 


Ending 


Assets 


Rate Base 


Revenues 


Residential Bill 


Customers 


Union 


(Mar. 31/87) 


$1,355,942,000 


$ 888,086,000 


$1,377,366,000* 


$831.04 


534,750 


Consumers' Gas 


(Sept. 30/86) 


$1,725,830,000 


$1,294,100,000 


$1,638,300,000 


$846.71 


880,994 


ICG Utilities (Ontario) Ltd 
(Northern and Central) 


(Dec. 31/86) 


$ 459,352,600 


$ 370,116,000 


$ 465,305,100* 


Western $891.11 
Northern $909.42 
Eastern $829.09 


154,312 


TOTAL 




$3,541,124,600 


$2,552,302,000 


$3,480,971,100 




1,570,056 


'Includes revenue from storage and or transportation of gas 


for others. 









The Ontario Energy Board- Its Role 
and Responsibilities 




Rate-setting- Natural gas 

Each natural gas utility sells and trans- 
ports gas in franchisee! areas of the 
province. Competition in the sale of gas 
now exists both through the option to 
purchase gas directly and from suppliers of 
alternative energy sources. Since the trans- 
portation of gas involves an extensive 
network of pipelines and storage facilities, 
a monopoly over transportation optimizes 
efficiency and avoids duplication and the 
attendant cost increases that would result. 

In Ontario, gas must be sold under a Board- 
approved rate Order. Gas distributors are 
required by legislation to submit rate pro- 
posals to the Board for review and 
approval, which usually takes place on 
an annual basis. 

Rates vary among residential and all other 
customers and among classes of commer- 
cial and industrial customers. Rate setting 
is not an exact science, but it does attempt 
to reflect the costs imposed on the system 
by the varying demands of different classes 
of customers. For example, the demand 
among residential consumers using natural 
gas as a heating and cooking fuel depends 
on the weather and the time of day. On a 
per unit basis, it is more costly to provide 
service to residential users than to indus- 
try, which uses relatively large amounts 
of gas at a more consistent level. 

Setting rates involves striking a balance be- 
tween the prices to be paid by customers 
and a fair rate of return for shareholders. 

Rates are set for each utility following 
public hearings. In fixing rates for the 
future, the Board considers past, present 
and projected expenses as well as current 
and forecast economic conditions and 
trends, and the earnings expectations of 
those who provide the capital required to 
operate the utility. 



During rate hearings the OEB also consi- 
ders the quality of service provided to cus 
tomers, including matters such as safety 
and reliability, in order to ensure that 
service is commensurate with the rates 
charged. 



Interim Rate Adjustments 

Where significant changes in a utility's 
costs or revenues have occurred or will 
occur that will cause the financial integrity 
of a utility to be at risk, the Board may 



grant interim rate relief. This is usually 
done within the framework of a rates 
application and is subject to refund or 
other adjustment after the rates applicatior 
has been completed. 



Pipeline Construction 






The Ontario Pipeline Co-ordination 
Committee (OPCC) is an interministerial 
committee concerned with the environ- 
mental impact of pipeline constaiction. 
Since 1980 the OPCC has reviewed over 
60 projects involving 1300 km of pipeline! 
construction. Other system facilities, sucfj 
as consumers' Gas Liquid natural gas plan]; 
are also reviewed by the OPCC. 



The OPCC is chaired by a staff person fron 
the Ontario Energy Board and includes 
representatives from the Ministries of Agri 
culture and Food, Energy, Environment, 
Consumer and Commercial Relations, 
Natural Resources, Citizenship and Culture 
Municipal Affairs, Housing, Transportatior 
and Communications and other regional 
agencies as required, such as the Niagara 
Escarpment Commission. The natural gas 
utilities consult with these agencies in th 
early stages of their planning. 



Union Gas compressor plant, Dawn, Ontario. 



The objective of the OPCC is to avoid any 
long-term negative impact on the environ- 
ment and to minimize the short-term 
impact during construction. This is 
achieved through the review of project 
proposals, including route or site alterna- 
tives, and resolution of issues before formal 
application for leave to construct has been 
filed with the Board. 



Certificates of Public 
Convenience and Necessity 

These certificates give permission to con- 
struct gas works and to supply gas to 
municipalities. 




Aquatic environment testing. The Energy 
Board oversees the Ontario Pipeline 
Co-ordination Committee, which ensures that 
the environment is not threatened by natural 
gas installations. 



Franchise Agreements 

Each municipality must authorize the 
supply of gas and the construction of dis- 
tribution works in the municipality 
through a by-law. Negotiations regarding 
terms and conditions are held between the 
utility company and the municipality 
involved. The terms and conditions of the 
franchise agreements reached must then 
be approved by the Board. 

Many of the existing agreements date back 
30 years or more, and most have expired 
and have been renegotiated. Where cir- 
cumstances have changed substantially 
since the time the original agreement was 
made, the renegotiation can be a lengthy 
and complex process. 



Natural Gas Storage Areas 

A vital link in the natural gas distribution 
system in Ontario is the availability of 
storage for gas in depleted gas wells in 
southwestern Ontario. These storage areas 
are used by transmitters and distributors 
to meet fluctuating demand and to draw 
on in case of emergency. 



Gas is normally injected into storage 
during the summer months when demand 
is low, to be withdrawn in high consump- 
tion periods during the winter. This load 
balancing function makes it possible for 
the transmission system from western 
Canada to operate in a highly efficient 
manner. 

Gas may not be injected into any geolo- 
gical formation unless it is a designated gas 
storage area. The OEB approves a forma- 
tion for storage and authorizes the injec- 
tion, storage and removal of natural gas 
within such storage areas. 



Monitoring Performance 

In addition to the information filed in 
support of rate applications, the Board 
receives regular information from natural 
gas utilities regarding financial operations 
and performance. Where underearning or 
overearning occurs, the Energy Returns 
Officer, a staff member of the OEB, may 
conduct a special audit. The Board may, 
on its own motion, require a utility to 
appear before it to explain either excess 
earnings or underearnings. 




A natural gas storage wellhead. Storage of 
natural gas is also regulated by the Ontario 
Energy Board. 



11 



Accounting Procedures 

Natural gas utilities must conform to a 
uniform system of accounts as prescribed 
by the OEB. Amendments to the system 
were initiated in fiscal 1986-87. No change 
in accounting practices may take place 
without the Board's approval. 



Changes in Ownership 

A utility wishing to sell its assets or 
amalgamate with another utility and any 
individual who wishes to acquire shares 
of a utility, such that the individual will 
hold more than 20 percent of any class of 
shares, requires the leave of the Lieuten- 
ant Governor in Council. The Board may 
recommend exemption from a hearing or 
may hold a hearing and submit its report 
and opinion to the Lieutenant Governor 
in Council. 



Legislation 



In addition to the Ontario Energy Board 
Act, five other legislative acts give the OEB 
jurisdiction: 

• the Municipal Franchises Act; 

• the Petroleum Resources Act; 

• the Public Utilities Act; 

• the Assessment Act; and 

• the Toronto District Heating Corporation 
Act. 

The nature of public utilities changes in 
keeping with the changes in the economic 
and social environment in which they 
operate. As such, it is appropriate for the 
Board to review legislation relating to 
public utilities and, if necessary, propose 
amendments. 



Generic Hearings and References 

A generic hearing may be held on the 
Board's own initiative, in response to an 
emerging trend in the industry or to an 
area of growing interest or concern. It 
deals with a subject in a broader context 
than issue-specific hearings. 




An energy-related matter may also be 
referred to the Board by the Lieutenant 
Governor in Council, the Minister of Energy 
or the Minister of Natural Resources for 
review at a public hearing. 

Recent examples of generic hearings and 
references include the T-rate/bypass or 
contract carriage decision, the review of 
franchise agreements, system expansion 
and liquefied natural gas storage facilities 
proposed by Consumers' Gas. These cases 
are reviewed in detail later in this report. 



Ontario Hydro 



Ontario Hydro's bulk power rates are set 
by Hydro's own board of directors. How- 
ever, a Hydro rate proposal is referred to 
the OEB by the Minister of Energy, along 
with full technical information and finan- 
cial data, and a public hearing is held. The 
Board submits a report with recommen- 
dations to the Minister of Energy and 
to the Chairman of Ontario Hydro. The 
recommendations are not binding on 
Ontario Hydro or its board of directors, 
which has the repsonsibility for fixing final 
rates. 



Laying plastic pipe for the transmission 
of natural gas. 



1? 



Activity Review 



The following pages contain lists of ac- 
tivities carried out by the Board between 
April 1, 1986, and March 31. 1987, as well 
as reviews of selected cases. 

Cases may have three stages: hearing, 
Report or Reasons for Decision, and, where 
appropriate, Board Orders. 



Cases included in the following lists may 
have only proceeded through one stage of 
the hearing process; some cases bridge 
from one fiscal year to the next before a 
Decision or Report is issued, depending 
on the timing of hearings. 



CMP -Board Interim Orders 


File Number 


Originator/ Applicant 




Matter 


EBRO 413 


Union 




243 applications including extensions and vary orders 


EBRO 415 


Northern & Central/ICG 




233 applications including vary orders 


EBRO 417 


Consumers' 




342 applications including extensions and vary orders 


EBRO 426 


Inter-City Gas 




2 one application and one vary order 


T-rate Applications 


EBRO 410 


Consumers' 




78 applications including extensions and vary orders 


EBRO 411 


Northern & Central/ICG 




4 applications including vary orders 


EBRO 412 


Union 




23 applications including extensions and vary orders 


Buy/Sell Arrangements 


EBRO 424 


Union 




27 applications including extensions and vary orders 


EBRO 432 


Consumers' 




13 applications 


References from the Lieutenant Governor in 


Council 




EBRLG 28A 


Unicorp 




Rescind or vary EBRLG 28 Cost Order 


EBRLG 29 


Lieutenant Governor in ( 


Council 


Reference Re: LNG 


EBRLG 30 


Gulf Canada 




Acquisition of Consumers' Gas Shares 


EBRLG 31 


Inter-City Gas 




Transfer of Assets 


Reports to the Minister 


EBRM 82 


Tecumseh 




Permit to Drill Kim -Col #51 Moore 18 -VII 


EBRM 83 


Union 




Permit to Drill Bickford, Terminus, Waubuno, Dawn, Payne 


EBRM 84 


Petrosar 




Permit to Inject Moore 1-23-IX 


EBRM 85 


Union 




Permit to Drill Bickford, Teminus, Dawn (47-49) 


Reference from the Minister of Energy Regarding Ontario 


Hydro 


HR 15 


Ontario Hydro 




Bulk Power Rates 


Uniform Accounting Orders 


UA60 


Union 




Exclusion of Surtax 


UA61 


Union 




Tools and Work Equipment Increase 


UA62 


Union 




Gas Costs 


UA63 


Consumers' 




Gas Costs 


UA64 


ICG 




Gas Costs 


UA65 


Union 




Yankee International 


UA66 


Consumers' 




Certain Gas Costs 



13 



File Number 


Originator/Applicant 


Matter 


Pipeline Exemptions 


PL 50 


Union 


Exemption: Owen Sound Replacement 


PL 51 


ICG 


Exemption: Iron Bridge 60.3 Line 


PL 52 


Union 


Exemption: Ingersoll 


PL 53 


Union 


Exemption: Amherstburg Line Replacement 


Certificates of Public Convenience and Necessity 


EBC 139 


Northern & Central Consumers' 


Cert: Township of Oro 


EBC 171 


Consumers' 


Cert: Village of Chalk River 


EBC 172 


Consumers' 


Cert: Town of Deep River 


EBC 173 


Consumers' 


Cert: Townships of Rolph, Buchanan, McKay & Wylie 


EBC 174 


ICG 


Cert: Town of Thessalon 


EBC 175 


ICG 


Cert: Town of Bruce Mines 


EBC 176 


ICG 


Cert: Township of Hagar 


EBC 177 


Northridge Petroleum 


Cert: All Ontario Municipalities 


EBC 178 


Actor 


Cert: All Ontario Municipalities 


EBC 179 


Brenda Marketing 


Cert: All Ontario Municipalities 


EBC 180 


Consoligas Management Limited 


Cert: All Ontario Municipalities 


Franchise Approvals 


EBA 435 


Northern & Central 


Franchise: Township of Oro 


EBA 472 


OEB 


Rehearing of Lambton and Blenheim 


EBA 4 73 A 


Consumers' 


Extension: Town of Shelburne 


EBA 4 74 A 


Consumers' 


Extension: Town of Caledon 


EBA 4 75 A 


Consumers' 


Extension: Township of Innisfil 


EBA 476A 


Consumers' 


Extension: Township of Amaranth 


EBA 477 


Consumers' 


Franchise: Township of Whitby 


EBA 477A 


Consumers' 


Extension: Township of Whitby 


EBA 478 


Consumers' 


Franchise: Townships of Rolph, Buchanan, McKay & Wylie 


EBA 479 


Consumers' 


Franchise: Township of Mulmur 


EBA 4 79 A 


Consumers' 


Extension: Township of Mulmur 


EBA 480 


ICG 


Franchise: Town of Thessalon 


EBA 481 


ICG 


Franchise: Town of Bruce Mines 


EBA 482 


ICG 


Franchise: Township of Plummer Additional 


EBA 483 


ICG 


Franchise: Township of Johnson 


EBA 484 


ICG 


Franchise: Town of Cobourg 


Pipeline Construction and Expropriations 


EBLO 214 


Northern & Central 


Leave: North Bay -Sudbury Loop 


EBLO 215 


Consumers' 


Leave: NPS 36 -Parkway Belt West 






14 






File Number 


Originator/ Applicant 


Matter 


EBLO 216 


Consumers' 


Leave: Deep River & Chalk River 


EBLO 220 


ICG 


Leave: 4 North Shore Lines 


EBLO 222 


Union 


Leave: Toyota Transmission Pipeline 


EBLO 215(1) 


Consumers' 


Val Velzen (CANCELLED) 


EBLO 215(2) 


Consumers' 


Shypka (SETTLED) 


Natural Gas Rate Reviews and Interim Rate Reviews 


EBRO 392-6 


Wellandport 


Interim: Liability Insurance Premium 


EBRO 392-7 


Wellandport 


Request for extention of Interim Rates 


EBRO 404-2 


ICG 


Interim Rates (Rio Algom, Denison Mines, Eldorado Nuclear) 


EBRO 404-3 


ICG 


Interim Rates (Rio Algom, Denison Mines, Eldorado Nuclear) 


EBRO 405-2 


Union 


Rates 


EBRO 405-2A 


Consumers' 


Vary EBRO 405-2 (DISCONTINUED) 


EBRO 405-3 


Union 


Rehearing of Rate to Petrosar 


EBRO 407-A 


NRG 


Rates 


EBRO 408 


Northern & Central 


Rates 


EBRO 409 


Kidd Creek 


Rates 


EBRO 410 


Consumers' 


T-Rates 


EBRO 411 


Northern & Central 


T-Rates 


EBRO 412 


Union 


T-Rates 


EBRO 414 


Consumers' 


Rates 


EBRO 414-1 


Consumers' 


Cost of Gas Reduction 


EBRO 416 


NRG 


Rates 


EBRO 418 


Union 


Rates 


EBRO 418-A 


Union 


Vary Petrosar Order in EBRO 418 


EBRO 418-B 


Union 


To Vary EBRO 418 Order 


EBRO 419 


Consumers' 


To Vary or Rescind EBRO 405-2 (DISCONTINUED) 


EBRO 420-1 


Consumers' 


CMP Rate TCPL-WGMIP 


EBRO 421-1 


ICG 


WGM1P 


EBRO 422-1 


Union 


WGMIP 


EBRO 423-1 


Union 


Rates - Storage Contract with Gaz Metropolitan 


EBRO 425-1 


Inter-City Gas 


WGMIP -Boise Cascade 


EBRO 427-1 


Union 


Interim Storage Rate for Consumers' Gas 


EBRO 428 


CIL 


Rate with Union 


EBRO 429 


Union 


Cost of Gas Reduction 


EBRO 430 


ICG 


Rates 


EBRO 430-1 


ICG 


Cost of Gas Reduction 


EBRO 430-1 A 


ICG 


To Vary EBRO 430-1 Decision- Date Extension 


EBRO 431 


Union 


Short Term Storage Agreement — Sulpetro 



15 



File Number 


Originator/ Applicant 


Matter 


EBRO 431-1 


Union 


Interim Short-Term Storage Rates - Sulpetro 


EBRO 433-1 


Union 


Interim Transportation Rates "Interruptible and Reasonable Efforts" 


EBRO 435 


Cyanamid 


Application for Special Rate 


Other Energy Board Orders 


EBO 123 


Union 


Designation of Lands East of Bickford Place 


EBO 123A 


Magder 


To vary EBO 123 Report 


EBO 125 


OEB 


Review of Franchises & Certificates 


EBO 129 


Union 


Amendments to Storage Contracts — Kingston PUC 


EBO 130 


Gaiswinkler 


To have Brett as Designated Manager of Gobies Pool 


EBO 131 


Union 


Amendment Contract with Gaz Metropolitan 


EBO 132 


Union 


Short Term Storage Agreement — Consumers' 


EBO 133 


Union 


Short Term Storage Agreement — Sulpetro 


EBO 134 


OEB 


System Expansion Review 


EBO 135 


Consumers' 


Hillman Pool Unitization 



E.B.R.L.G. 29: 

Reference to Review Proposed 
Liquefied Natural Gas (LNG) 
Storage Facilities 

In April, 1985, Consumers' Gas announced 
a plan to construct an LNG storage fa- 
cility in Haldimand Township to accom- 
modate peak gas demands. The facility 
was proposed as a peak shaving plant to 
handle the company's peak temperature 
sensitive load by 1994. 

The LNG plant was to be built on a 180 
hectare site. The company proposed that 
the capacity of the storage tank would be 
92,000 m 3 (liquid) and the process facili- 
ties would be capable of supplying 8,500 
10 3 m 3 (gas) for the seven peak days an- 
ticipated in 1994. The anticipated cost of 
the project was approximately $74 million. 

On October 15, 1985, Consumers' applied 
to the Ontario Energy Board for leave to 
construct two pipelines to and from the 
proposed LNG facility. By Order-in-Council 
No. 327/86, dated January 30, 1986, the 
Board was required to hold a public hear- 
ing to examine certain aspects of the LNG 
facility. 



The Order-in-Council required the OEB 
to examine: 

(a) the need for the Project; 

(b) the alternatives to the Project which 
will satisfy that need; 

(c) the safety considerations associated 
with the Project; 

(d) the advantages and disadvantages of 
the Project, the alternatives to the Pro- 
ject and the six candidate sites con- 
sidered by the applicant, taking into 
account the physical, social, economic, 
and natural environment, including the 
effects on air, land and water; and 

(e) the economic feasibility of the Project. 

Since Consumers' proposal aroused the 
interest of many residents and landowners 
in the vicinity of the site selected in 
Haldimand Township, the Board chose to 
hold the hearing in Cobourg, about 15 
kilometers from the proposed site. 

The Board issued its Report to the Lieu- 
tenant Governor in Council on December 
12, 1986. The Report concluded that con- 
struction of the LNG facility, as proposed 
by Consumers', was not in the public 
interest. 



The Board questioned the reliability of 
Consumers' forecasts of customer demand 
since the applicant had consistently over- j 
estimated peak day demand in the period 
examined during the hearing. The Board j 
concluded that the need for the facility 
had not been adequately established. 






Consumers' evidence at the hearing de- 
monstrated that several alternatives to the 
LNG facility had been considered. The 
Board concluded that these alternatives 
were either too costly or would not meet 
Consumers' perceived need. However, the) 
Board found Consumers' had not adequate 
ly explored demand management tech- 
niques as an alternative to constructing 
new facilities. 

During the hearing, Union Gas Limited 
presented two alternatives which involvec 
developing additional underground storage 
and pipeline facilities in southwestern 
Ontario as a means of meeting Consumers 
forecast need. 






16 



The Board found that one of the Union 
proposals met Consumers' perceived need 
and offered greater advantages to the 
Ontario public as a whole than did the 
LNG facility. The Board found Union's pro- 
posal to be less costly in the long term 
and more flexible in that the project could 
be completed in stages and could econom- 
ically serve both peak day demand and 
demand over a longer period of time. It 
was, therefore, a more viable and reliable 
alternative than the LNG facility. 

While recommending that the Lieutenant 
Governor in Council not approve the LNG 
facility, the Report discussed other issues 
including safety, environmental impact, 
site selection and pipeline construction. 
The Board indicated that these matters 
should be further explored if its recom- 
mendations were not followed and the 
LNG project were allowed to go ahead. 

Safety concerns had been raised by a 
number of participants during the hearing. 
Consumers' demonstrated that the technol- 
ogy exists to permit the construction and 
operation of the proposed LNG facility at 
an acceptable level of safety. However, 
the Board stated in its report that if the 
project were to be carried out, Consumers' 
should be required to ensure that proper 
safety features would be incorporated in 
its design and meticulous attention should 
be given to quality control to prevent any 
undue risk to the public. 

The design of the storage tank selected by 
Consumers' was acceptable to the Board. 
However, the Board recommended that if 
the project proceeded, additional informa- 
tion regarding construction, operational 
safety, and inspection and evacuation pro- 
cedures would be required. 



E.B.R.L.G. 30: 

Gulf Canada Corporation 

Acquisition of Consumers' Gas 

In April 1986, Gulf Canada Corporation 
acquired control of Hiram Walker Resources 
Ltd., and with it, 82.9 percent of the shares 
of The Consumers' Gas Company Ltd. Gulf 
proposed to transfer this holding in Con- 
sumers' to a new company and possibly 
to a second new company. Under section 
26 of the Ontario Energy Board Act, Gulf 
was required to seek the permission of 
the Lieutenant Governor in Council. This 
permission was sought through an appli- 
cation to the Board. 

The Board heard evidence on this matter 
during five hearing days from October 8 
to 17, 1986. The evidence given pertained 
to various aspects of the public interest 
that could be affected by the proposed 
transaction. 

The Board's report was submitted to the 
Lieutenant Governor in Council on 
November 17, 1986. It recommended that 
the proposed transfers be approved, subject 
to certain conditions. The major condi- 
tions, or undertakings, pertained to the 
independence of Consumers', affiliated and 
related party transactions and the main- 
tenance of Consumers' financial integrity. 
The Board feels that these undertakings 
adequately protect the public interest. 



E.B.L.O. 216: 

Application to Serve 

Peep River and Chalk River 

Consumers' applied to the Board on April 
14, 1986, for leave to construct gate 
stations and pipelines to supply the Village 
of Chalk River, the Town of Deep River 
and the Township of Rolph, Buchanan, 
Wylie and McKay, in the County of Ren- 
frew. The hearing was held in Toronto on 
August 20, 1986. 



In its Reasons for Decision dated September 
5, 1986, the Board indicated that the public 
interest had not been fully addressed by 
the evidence and that the project did not 
pass Consumers' economic feasibility test. 
While the Board rejected Consumers' appli- 
cation, it noted that certain matters re- 
garding system expansion, including the 
economic feasibility tests used by the local 
distribution companies, should be exam- 
ined in a special hearing. 

The Board further noted that important 
issues concerning system expansion to 
smaller communities should be considered 
and that that these could best be addressed 
outside a specific application and that the 
Board would call a special hearing for this 
purpose in early 1987. The recommen- 
dations from the special hearing were 
expected to help determine whether new 
guidelines should be developed by the 
Board for "leave to construct" applications. 

On January 9, 1987, the OEB issued Notice 
of a "Review by the Ontario Energy Board 
of the Expansion of the Natural Gas 
System in Ontario", under Board File E.B.O. 
134. The procedure set out in the notice 
was designed to obtain input to the Board's 
review through written submissions in 
response to a paper developed by Board 
staff. Submissions were received from all 
major utilities and a two-day technical 
conference was held in April, 1987, to 
discuss the submissions. The Report will 
be reviewed in next year's annual report. 



17 



EBRO 403 EBRO 414 EBRO 414 

Previous Board Decision Final Consumers' Submission Board Decision Oct. 1/86 



Test Year ending September 30 



1986 



1987 



1987 



Rate Base ($000's) 


1,284,200 


Utility Income ($000's) 


159,700 


Indicated Rate of Return on Rate Base 


12.44% 


Cost of Capital 

Long term Debt 
Unfunded Debt 
Preference Shares 
Common Equity 


11.98% 
10.00% 
11.27% 
15.00% 



Allowed/Requested Return on Rate Base 
Gross Revenue Deficiency ($000's) 



12.59% 
4,200 



,304,100 
156,600 
12.01% 



12.00% 
10.13% 
11.26% 
15.00% 

12.97% 

26,400 



1,505,400 
158,800 
12.16% 



12.07% 

9.30% 

11.26% 

14.00% 

12.58% 

11,500 



E.B.R.O. 414: 

The Consumers' Gas 

Company Ltd. 



Consumers' is Canada's largest natural gas 
distribution utility, serving about 850,000 
residential, commercial and industrial cus- 
tomers in south, central and eastern 
Ontario, western Quebec and northern New 
York state. Consumers' annual gas deliver- 
ies in Ontario are approximately 9.0 10 9 m 5 . 

By application dated March 12, 1986, 
Consumers' requested rate increases for 
all customers effective October 1, 1986, in 
order to recover a projected $37.9 million 
gross revenue deficiency for its 1987 test 
year. The hearing began on June 5, 1986, 
and lasted seventeen days. The Board 
issued its decision on October 1, 1986. 



During the course of the hearing, a number 
of modifications were made by Consumers' 
to its original submission, resulting in 
reductions to the claimed revenue defi- 
ciency. The following table shows the key 
financial elements of Consumers' final 
submission and the Board's decision. Data 
from the previous Board decision, which 
was for Consumers' 1986 test year, is 
shown for comparison. 



E.B.O. 125: 

Municipal Franchise Agreements 

On May 21, 1986, the Ontario Energy 
Board issued a Report on Municipal Fran- 
chise Agreements for gas distribution 
based on a hearing held in November and 
December of 1985. The hearing had been 
called by the Board because of a growing 
conviction that municipal franchise agree- 
ments, many of which originated 30 years 
ago or more, needed to be reviewed by all 
parties involved— municipalities, gas dis- 
tributors, gas consumers and the Board 
itself. 



Municipal franchise agreements generally 
consist of two elements: 

(1) the rights granted to the gas utility by 
the municipality to supply gas to the 
inhabitants and to use the municipal road 
allowances to install a pipeline system; 
and 

(2) the responsibility of the gas utility to 
comply with municipal requirements in 
return for the right to occupy the roadway. 
While most franchise agreements origin- 
ated in the years following 1957, when 
natural gas from western Canada was 
brought to Ontario, some agreements, 
particularly in southwestern Ontario (the 
franchise area held by Union Gas) date 
from the early 1900s. 

As the Board report emphasized at the 
outset, "the most valuable consequence 
of the hearing. . .was the process of mutua 
education and understanding between the 
participants that developed ... in the course 
of discussion of a number of major issues. 'i 
The report encouraged these discussions 
to continue and urged all municipalities 
which have not already done so to create 
Utilities Co-ordinating Committees. 



18 



A major proposal of the report was the 
creation of a multi-party working com- 
mittee, the Municipal Franchise Agreement 
(MFA) Committee, comprising four munici- 
pal representatives designated by the 
Association of Municipalities of Ontario, 
four representatives designated by the 
Ontario Natural Gas Association, including 
representatives from each of the three 
major gas utilities, and Board staff. 

The sharing of costs of gas line relocations 
was a major issue at the hearing. The 
report noted that although actual costs to 
municipalities and utilities are not exces- 
sively high, the sharing of these costs is 
the cause of many disputes. There is a 
wide range of cost-sharing practices in use 
in Ontario, but the report does not recom- 
mend any of the existing formulae and 
does not approve of widespread reliance 
on the Public Service Works on High- 
ways Act. The Board said it expects the 
MFA Committee to establish a new model 
formula which would eliminate the dis- 
tinction between the cost of labour and 
other costs and identify an appropriate 
percentage range for the municipal share 
of total relocation costs. 

Both municipalities and utilities would like 
to move towards greater province-wide 
standardization in municipal franchise 
agreements. However, there must be room 
for negotiation between parties, and suf- 
ficient flexibility to accommodate local 
conditions and circumstances. The major 
task of the MFA Committee is to draft a 
model agreement to which parties and the 
OEB can refer as new agreements and 
renewals come before the Board for ap- 
proval. At year end, the MFA Committee 
was making significant progress. A report 
to the^Board is expected in the new fiscal 
year. 



E.B.R.O. 410, 411, 412: 
Contract Carriage Rates (T-Rates) 

Following its Interim Decision of April 4, 
1986, the Board, in July, 1986, called 
hearings on its own motions to examine 
contract carriage arrangements for Con- 
sumers', Union and ICG (formerly Northern 
and Central). The hearings were combined 
so that elements common to all three 
distributors could be considered. 

The hearing took place between September 
and December of 1986. 

During the hearing the Board heard evi- 
dence on the following major issues: by- 
pass; brokers; unbundled rates; distance- 
based, postage stamp or value of service 
rates; group billing and multiple location 
billing; demand charges; T-rate criteria; 
diversions; security of supply; storage; 
variation accounts; separation of trans- 
portation services and marketing activities; 
affiliate transactions; and jurisdictional 
matters. 



The bypass issue was heard first, and 
because of its significance and jurisdic- 
tional implications, separate Reasons for 
Decision were issued on December 12, 1986. 
The Board found "... that the Province of 
Ontario and this Board, as its delegate, 
has jurisdiction over bypass within 
Ontario. . . it is important to remove any 
uncertainty with respect to its jurisdiction 
and (the Board) will therefore state a case 
to the Divisional Court of the Supreme 
Court of Ontario." The Divisional Court 
heard this matter on March 17 and 18, 
1987, rendering an oral decision confirming 
that the Board has jurisdiction. 

The Board also stated that "a general 
policy opposing bypass is not in the public 
interest. The Board will consider each 
application for bypass on the basis of its 
individual merits." 




Aluminum billet furnace, Chatham, Ontario 
(Daymond, A Division ofRedpath Industries 
Ltd.). Natural gas is a source of energy for 
industries across Ontario. 



19 



Reasons for Decision on the remaining 
issues were issued on March 23, 1986. 
For the purposes of that Decision, the 
Board defined the core market as those 
volumes that are sold by the local dis- 
tributing companies (LDCs), excluding buy- 
sell volumes. It also stated that anyone 
who wished to buy direct could do so. 

The Board found that the supply of gas 
should be protected by the LDC, which 
should make any contractual arrange- 
ments necessary to ensure that gas will 
be available. It further stated that the 
responsibility for security of supply to the 
non-core market rests with the direct pur- 
chasers themselves. 

In order to encourage market-responsive 
prices for natural gas, the Board found 
that at least three conditions should be 
met: 

• All natural gas consumers must be free 
to choose their supplier of natural gas; 

• Transportation service on TCPL's (Trans- 
Canada PipeLines) and the LDCs' systems 
must be provided to all gas consumers on 
equal terms; and 

• Buyers must have access to sufficient 
information concerning market prices for 
gas. 



The Board also found that brokers could 
assist in developing a competitive gas 
supply market in Ontario, provided they 
observe provincial legal requirements and 
that unbundled services are a necessary 
part of the movement toward a more 
competitive commodity market for natural 
gas. The Board directed the utilities to 
segregate the cost of gas from the cost of 
transportation and develop cost studies 
for transportation, storage, load-balancing 
and best efforts back-stopping services. 

With respect to rate types, the Board found 
that postage stamp rates are appropriate 
but that the flexibility needed to compete 
with a credible bypass application may be 
provided through the recognition of value 
of service criteria or distance factors. The 
Board also found that groups should be 
permitted to be formed for the purpose of 
improving gas purchasing power. As well, 
the Board found that minimum volumes 
are not required for T-service. 

The Board found that sales customers who 
change to T-service should be allowed to 
retain their existing storage entitlement. 
Unused storage would be available on a 
first come, first served basis. 

To facilitate equal access to T-service, the 
Board found that the separation of mar- 
keting and transportation functions was 
necessary, as this would improve the com- 
petitive environment by ensuring that 
LDCs market gas on equal terms with 
brokers and producers. The separation 
would eventually entail separate corporate 
entities. 



The Board reiterated its position that it 
has the power to compel an LDC to provide 
services to any qualifying customer, noting 
that this is a natural part of the Board's 
jurisdiction as a regulator of gas monopolies 

The Board outlined three mechanisms 
which the legislation currently requires it 
to control the operation of brokers in 
Ontario: through approval of a municipal 
by-law., or franchise; a certificate of public 
convenience and necessity issued by the 
Board; and an order approving or fixing 
just and reasonable rates and other charges 
for the sale of gas (gas cannot be sold in 
Ontario without such an order from the 
Board). 

The Board also stated that it planned to 
review, consolidate and clarify all legis- 
lation affecting natural gas regulation and 
recommend amendments to reflect changes 
in the gas industry in the 25 years since 
the legislation was introduced. 

The Board ordered the utilities to file new 
rate proposals during the summer of 1987 
so that final implementation of contract 
carriage rates could take place in the fall 
of 1987. The Board also expressed its 
intention to issue a separate Decision 
regarding the licencing and operation of 
four brokers who have each filed for a 
certificate for public convenience and 
necessity covering all of Ontario. That 
Decision will be discussed in next year's 
annual report of the Board. 



i .: 



20 



E.B.R.O. 430: 

ICG Utilities (Ontario) Ltd (ICG) 

ICG (formerly Northern and Central Gas 
Corporation Limited) serves approximately 
120 communities in northwestern, northern 
and eastern Ontario. It operates a natural 
gas distribution system consisting of some 
5,600 kilometres of pipeline originating at 
more than 80 delivery points on the TCPL 
transmission system. Essentially, the ICG 
system is a series of laterals off the TCPL 
pipeline as it crosses Ontario, starting at 
Kenora and extending to the shores of 
Lake Ontario and the St. Lawrence River. 



By application dated October 6, 1986, ICG 
requested approval to increase rates and 
other charges effective January 1, 1987. 
Although ICG provided some of its prefiled 
evidence with its application, complete 
evidence was not filed until January, 1987. 
Consequently a decision could not be 
issued until later in 1987. ICG requested 
interim relief, subject to refund, in order 
to recover costs and expenses and to earn 
a rate of return on common equity of 14.75 
percent. The hearing into the main rate 
application commenced on January 26, 
1987, and concluded on February 20, 1987. 



On March 10, 1987, the Board issued notice 
that the hearing into ICG's main rate 
application would be reopened to examine 
the operational aspects of transportation 
arrangements between ICG and certain 
end-users, as well as to evaluate ICG's 
efforts in obtaining regulatory compliance 
and approval. 

After denying a motion that the Board 
should not reopen the hearing, the date 
was set for April 1, 1987. Details of the 
hearing as well as the Board's Decision in 
the main case will be included in next 
year's annual report. 




Ontario s steel industry is a heavy user 
of natural gas. 



21 



E.B.R.O. 405: 

Union Gas Rate Proposal 

Union Gas Limited is the second largest 
gas distributor in Ontario, serving ap- 
proximately 518,000 customers in south- 
western Ontario. Union also operates a 
network of pipeline, storage and compres- 
sion facilities to provide service to 
customers and other utilities in eastern 
Ontario and Quebec. 

The hearing into Union's application for a 
rate increase for fiscal 1987 was held 
under Board file E.B.R.O. 405-2 during 
November and December of 1985 and 
lanuary of 1986. The Board issued a 
Decision on April 3, 1986, with Reasons 
following on May 5. 



The Board found the use of a test year 
ending March 31, 1987, to be appropriate 
and determined that: 

• In view of the recent renegotiation of 
the SNG contract with Petrosar Limited it 
was inappropriate to deal with Premium 
Account 4 in the proceeding; 

• Union's utility rate base, net of 
accumulated deferred income taxes, was 
$888,068,000; 

• A reasonable rate of return on such a 
rate base is 12.58%; 

• Union's revenue deficiency was 
$4,357,000; 

• Union's proposals for rate changes for 
storage and transportation customers were 
acceptable. 



Union's evidence showed that the increase 
revenue from storage and transportation 
customers would exceed the found revenu 
deficiency. Union was directed to retain 
existing rate schedules for all customers 
and to record the difference between the 
found revenue deficiency and the increase 
revenue from storage and transportation 
customers. The Board issued a further 
order in June 1986 which incorporated 
revisions in Union's rate schedules and 
structure. 



EBRO 405-1 
Previous Decision Oct. 28/85 



EBRO 405-2 
Final Union Submission 



EBRO 405-2 
New Board Decision 



Test Year Ending March 31 



1986 



1987 



1987 



Rate Base ($000's) 

Utility Income ($000's) 

Indicated Rate of Return on Rate Base 

Cost of Capital 

Long-term Debt 
Short-term Debt 
Preference Shares 
Common Equity 

Allowed Rate of Return on Rate Base 

Revenue Deficiency ($000's) 



880,392 
115,278 
13.09% 



12.01% 
10.50% 
10.05% 
15.60% 

12.75% 

321* 



895,096 

90,195 
10.C 



12.51% 

8.80% 

10.18% 

16.00% 

13.05% 

56,706 



888,086 

109,690 

12.35% 



12.51% 

8.80% 

10.18% 

14.75% 

12.58% 

4,357 



'After adjustment for amortization of Petrosar Premium Account 3 



22 



E.B.R.O. 418: 

Union Gas- Application 

to Vary Rates Order 

In April of 1986, Union requested an order 
varying the Board Order E.B.R.O. 405-2 
(see above). Union also requested an order 
approving or fixing rates to recover the 
balance in Synthetic Natural Gas (SNG) 
Petrosar Premium Account 4. This account 
consisted of the excess costs over the 
traditional sources of supply arising from 
a contract Union entered into with Petro- 
sar to obtain a secure supply of gas. The 
SNG is more costly than traditional sources 
of supply. 

Union requested other relevant accounting 
orders to record continuing premium cost 
of the SNG premium, considerably reduced 
as a result of the 1986 agreement between 
Union and Petrosar. The hearing was held 
from May 12 to May 16, 1986. 

The Board considered Union's attempt to 
lower the SNG premium, through an agree- 
ment with Transcontinental Pipeline 
Corporation to export SNG at the official 
gas export price, along with the 1986 
agreement with Petrosar, to be insufficient 
justification for the total recovery of 
Premium Account 4 through rates. How- 
ever, the Board found that the remaining 
balance, after the deduction of the Transco 
settlement and various Energy Exchange 
Agreement amounts, should be amortized 
to future costs according to a specific 
amortization schedule. 



In previous cases, the Board evaluated 
Union's efforts to mitigate Petrosar pre- 
mium costs in deciding the extent of cost 
recovery. The Board continued to observe 
these same principles when assessing SNG 
premium costs accumulated before the 
1986 agreement. 

The Board recognized that the Transco 
settlement and the proposed 1986 agree- 
ment were efforts to mitigate costs. Never- 
theless, the Board found that it would 
continue to require efforts to lower the 
SNG premium over and above the con- 
tractual discount before finding an amount 
to be recovered through rates. The Board 
found that 75 percent of the premium net 
of the discount should be apportioned to 
the customers, and 25 percent to the 
shareholders. 

The Board made no finding as to future 
premiums, since there was no contract at 
that time and no indication that there 
would be an agreement between the 
parties. 



E.B.R.O. 418A: 

Union Gas - Recovery 

of SNG Costs 

In August, 1986, Union Gas applied to vary 
Ontario Energy Board Order E.B.R.O. 418 
to include a provision for recovery of the 
ongoing costs of the SNG premium through 
prospective rates. These costs resulted 
from the renegotiated 1986 agreement 
between Union and Petrosar. 



The Board upheld its findings from E.B.R.O. 
418 noting that principles regarding 
sharing, mitigation and the incentive to 
mitigate still apply, and that the move to 
collection and institution of variation 
accounts did not change these principles. 
The Board did find that 25 percent of 
the balance accumulated in SNG Premium 
Account 5 should be transferred and 
recorded in a designated SNG Premium 
Deferral Account. The remaining 75 per- 
cent of the SNG premium cost incurred by 
Uniun would be accumulated in SNG Pre- 
mium Account 5. 

The Board also found that net revenues 
received by or credited to Union in miti- 
gation of SNG premium costs should be 
credited equally to the SNG Premium 
Account 5 and the SNG Premium Deferral 
Account. The balance in the SNG Premium 
Account 5 would be amortized to Union's 
cost of gas and recovered in Union's rates 
during the balance of Union's 1987 fiscal 
year and in each fiscal year thereafter. 
This charge would increase Union's rates. 

The Board also gave Union the opportunity 
to apply for recovery of the balance in 
the SNG Premium Deferral Account at the 
end of each fiscal year, or, alternatively, 
to write off the balance at the end of each 
fiscal year. 



23 



E.B.R.O. 414-1, 429, 430-1: 
Gas Cost Reductions 

In the fall of 1986, the three major utilities, 
Consumers' Gas, Union Gas and ICG, ap- 
plied to the Board for orders to reflect 
reductions in their cost of gas in a lowering 
of rates. The reductions resulted from a 
Memorandum of Agreement between each 
company and TransCanada PipeLines 
Limited or Western Gas Marketing Limited 
(the marketing arm of TCPL). These memo- 
randa in turn were the outcome of the 
October 1985 Agreement on Natural Gas 
Markets and Prices, which provided for 
negotiation of prices of all gas moving 
interprovincially beginning November 1, 
1986. 

The memorandum each company had 
signed provided for a 20C per gigajoule 
reduction in the cost of all contract gas 
purchased from TCPL from September 
1986 to October 1987. It also called for 
additional price discounts to be passed on 
to certain of each company's industrial and 
commercial customers. Proposals made by 
the utilities set discounts that meant the 
Board would no longer fix rates for large 
volume customers. The final cost of gas 
to large volume end-users would no longer 
be at rates approved by the Board but 
would be at the discretion of the utility 
for most customers, and the utility together 
with TCPLAVGML for very large customers. 

The Board was concerned about approving 
rates that would: 

• be set on the basis of criteria to which 
it was not party; 

• require it to effectively abandon parts 
of its jurisdiction; 

• possibly lead to undue discrimination; 
and/or 

• be based on an agreement with a life- 
span of two years, which might prove to 
be too long. 



The Board concluded that it would be in 
the interest of all concerned if there is 
sufficient time for the applicants to re- 
negotiate the contracts with TCPL/WGML 
in such a way that the Board could exer- 
cise its jurisdiction according to the law. 

The Board accepted the costs flowing from 
each company's Memorandum of Agree- 
ment until April 30, 1987 (later extended 
to October 31, 1987), in order to permit 
time for renegotiation and allow proposed 
criteria to be put in place and assessed. 
However, the Board pointed out that the 
renegotiation might not take twelve 
months and recommended that it proceed 
as quickly as possible. 

Additional findings of a minor nature 
related to the different utilities were in- 
cluded in the Decision issued for each 
company. 



H.R. 15: 

Ontario Hydro Rate Proposal 

Ontario Hydro's proposal to change its 
rates effective January 1, 1987, was referred 
to the Board by the Minister of Energy on 
April 15, 1986. 

The hearing commenced on June 2 and 
concluded on June 27, 1986. The Board 
reported to the Minister of Energy on 
August 28, 1986. 

Hydro originally proposed an average rate 
increase for all customers of 4.9 percent. 
The increase was based on a gross revenue 
requirement of $5,233 million for 1987, an 
increase of $344 million over the primary 
revenue expected in 1986. 

Increased sales volumes were expected to 
recover $117 million, leaving $227 million 
to be recovered through the rate increase. 
The proposed revenue requirement in- 
cluded a provision for net income of $294 
million. 






In its Report to the Minister, the Board 
recommended an average all-customer rate 
increase of 5.9 percent to meet a gross 
revenue requirement of $5,228 million. The 
Board included a net income provision of 
$400 million. The Board outlined six major 
concerns underlying its conclusions and 
recommendations as set out in the Report. 

1 . Hydro should set annual rates on the 
basis of realistic forecasts of its costs, in 
accordance with its mandate to provide 
power at cost for Ontario. Those costs 
should be reflected in Hydro's Corporate 
Budget. Hydro should not announce ac- 
ceptance of this Board's recommendations 
regarding the components of its revenue 
requirement unless it intends to reflect 
those recommendations in its Corporate 
Budget. 

2. Hydro must make a major effort to 
reduce its controllable costs, particularly 
those relating to Operations, Maintenance 
and Administration. 

3. Net income must be increased and 
should be recognized by Hydro as a legit- 
imate cost of service in its rate setting. 

4. The moratorium on rate design changes 
agreed upon by the relevant parties should 
be brought to an end. 

5. Conservation, defined as making the 
most efficient use of electricity, should 
now be given priority by Hydro in its 
marketing and system planning. 

6. Conservative accounting principles 
should be observed by Hydro in its rate 
setting and budgeting. Current costs should 
be covered by current rates, not deferred 
in the expectation of future easing of costs 



24 



Determination of Revenue Deficiency and Average All Customer Rate Increase 
for the Year Ending December 31, 1987 ($ millions) 



Original Submission Updated Forecast Board Recommendation 



Primary Sales 

Revenue Requirement 

Revenue Deficiency 

Average All Customer Rate Increase 



4,873 
5,233 
(360) 

4.9% 



4,773 

5,007 
(234) 
4.9% 



4,773 
5,056 
(283) 
5.9% 



Pro-Forma Income Statement 

for the Year Ending December 31, 1987 ($ millions) 



Original Submission Updated Forecast Board Recommendation 



Gross Revenue Requirement 
Deduct— Secondary Sales 



5,233 
360 



Net Revenue Requirement 


4,873 


Operation, Maintenance and Administration 


1,120 


Fuel and Fuel-Related 


1,090 


Depreciation 


762 


Interest and Foreign Exchange 


1,966 


Net Income 


294 



5,179 
172 

5,007 



1,070 
1,114 

751 
1,945 

299 



5,288 
172 

5,056 



1,037 
1,104 

747 
1,940 

400 




Hydro lines stretch across the sky as the sun 
sets in Mississauga. 



25 



Cost Awards to Intervenors 



In 1985, a generic hearing was held to 
review the matter of cost awards to par- 
ticipants in Ontario Energy Board hearings. 
At issue was the need to encourage broad 
participation in hearings and to assist 
participants in providing high quality 
input. 

The Board decided on a procedure for 
determining cost awards involving a panel 
to hear applications from intervenors. 
During the year in review, the Board 
awarded costs to the following parties: 

E.B.R.O. 409 

• Kidd Creek Mines Ltd. 

E.B.R.O. 402-2 

• C-I-L Inc. 

• City of Kitchener 

• Industrial Gas Users Association (IGUA) 

• The Association of Physical Plant 
Administrators of certain Named Uni- 
versities (The Universities) 

E.B.R.O. 408 

•IGUA 

E.B.O. 123 

• B. Magder Enterprises, Dawn Petroleum 
Company, Ms. Louise Marguerite Reid, 
Mr. Stanley Yaki, Mr. Ross Font 



E.B.R.O. 418 

• C-I-L Inc. 

• City of Kitchener 

• IGUA 

E.B.R.O. 414 

• Heating, Refrigerating and Air Condi- 
tioning Institute of Canada (Toronto 
Chapter) 

• IGUA 

E.B.R.O. 418A 

• C-I-L Inc. 

• City of Kitchener 

• IGUA 

• The Universities 

E.B.R.L.G. 29, E.B.L.O. 207, EBC 170 

• Mrs. Lynda Forbes 

• The Concerned Citizens of Haldimand 

Township 

E.B.R.O. 429 

• C-I-L Inc. 
•IGUA 



H.R. 15 

• Energy Probe 

• Association of Major Power Consumers 
of Ontario 

• Mr. Arnold Earl 

• Municipal Electric Association 






26 



Appendix I: 

The Public Hearing Process 



The Board's mandate is to regulate natural 
gas companies, advise the government and 
protect the public interest with regard to 
the pricing and distribution of natural gas 
and electricity. This is done primarily 
through public hearings. By providing a 
forum for the participation of all interested 
parties, a hearing ensures that the Board 
will render informed decisions which con- 
sider a wide variety of views and interests. 

The hearing process consists of the 
following steps: 



1. Initiation 

The process begins: 

a) upon the receipt of an application; 

b) upon receipt of a reference from 
the Lieutenant Governor in Council 
or from the Minister of Energy or 
the Minister of Natural Resources; 

c) upon direction from the Board that 
it will initiate proceedings to con- 
sider a matter under its jurisdiction. 



2. Notice of Application 

The Board directs the applicant to 
serve notice of the application or 
itself serves notice on all affected 
parties and interested public groups. 

For a major rate case, a natural gas 

utility will 

a) publish announcements of its appli- 
cation in regional daily newspapers; 

b) personally serve notice on muni- 
cipal clerks in the utility's service 
area; and 

c) notify others as directed by the 
Board. 



3. Interventions 

Interested parties may ensure their 
eligibility to participate in the hearing 
by filing an intervention with an 
explanation of their reasons for 
intervening. 




4. Notice of Hearing 

The Board determines the scope and 
probable length of the hearing and 
directs the applicant to serve notice 
of the time and place of the hearing 
on all parties who have intervened. 



5. Pre-Hearing Documentation 

a) Applications to construct pipelines 
are reviewed by the Ontario Pipe- 
line Coordination Committee 
(OPCC — see page 10) which exam- 
ines environmental implications. 
The OPCC sets out steps a utility 
must take before its application 
will be heard by the Board. Route 
selection and environmental 
impact studies are among the 
normal requirements of pre-filed 
evidence. 

b) Evidence in support of an appli- 
cation is filed with the Board up 
to two or three months before the 
hearing. 

c) Board staff and intervening parties 
may seek additional information 
by way of written interrogatories. 

d) Utilities answer interrogatories 
concerning pre-filed evidence be- 
fore the hearing commences. 



The Board conducts public hearings to get 
the widest possible input from groups and 
individuals affected by its decisions. 



27 



6. "First Day" Proceedings 

Before the hearing of evidence com- 
mences, the Board panel may review 
with interested parties procedural 
matters, technical issues, and the 
general approach to the hearing. This 
gives everyone an opportunity to 
become familiar with the application 
and to identify all the issues they 
wish to address in the hearing. 



7. The Hearing 

The Board ensures that sufficient 
evidence to make an informed deci- 
sion is presented, tested and put on 
the record. The applicant usually 
testifies first through written evidence 
and witnesses. Intervenors and 
Special Counsel to Board staff then 
question these witnesses and may 
offer witnesses of their own. These 
witnesses may be cross-examined 
by the applicant. 



Intervenors at an Ontario Energy Board 
Hearing, Toronto. 



28 



When all the evidence has been given, 
each party has the opportunity to 
offer a summation in the form of 
written or oral argument, as directed 
by the Board. 

The pre-filed evidence, transcripts of 
the hearing, and arguments are a 
matter of public record and are avail- 
able at the Board office in Toronto. 



8. Board Decision 

The Board summarizes its findings in 
a "Report" or a document called 
"Reasons for Decision" or "Decision 
with Reasons," either of which dis- 
cusses all the issues and arguments 
raised in the hearing and indicates 
the Board's findings. Depending on 
the complexity of the case, this pub- 
lication will appear a few weeks or 
months after a hearing. Copies of 
these documents are available from 
the Ontario Government Bookstore, 
880 Bay Street, Toronto, upon the 
payment of modest prescribed fees. 
Parties to the hearing receive copies 
from the Board when the Decision is 
issued. 



Board Order or 
Recommendation 



A Board Order is a legal document 
directing the implementation of a 
Board decision. It is binding on the 
parties named. Board Recommenda- 
tions are included in Board Reports 
to the appropriate Minister or the 
Lieutenant Governor in Council whc 
may or may not implement them. 



10. Review and Appeal 



A Decision or Order of the Board ma; 
be appealed by: 

a) applying to the Board requesting 
that it rescind or vary its Order; 

b) petitioning the Lieutenant 
Governor in Council requesting the 
a Board Order or Decision be con- 
firmed, varied, rescinded or 
reheard; 

c) appealing an Order to the Divi- 
sional Court upon a question of 
law or jurisdiction; 

d) applying to the Divisional Court 
for judicial review or a Board 




Appendix II: 

Board Organization 



Location 



The Ontario Energy Board offices, includ- 
ing hearing rooms and a reference library, 
are located in downtown Toronto at 14 
Carlton Street. 



Library 



The Board's Reference Library is open to 
the public by appointment. It carries 
periodicals and other current information 
on regulation and the natural gas industry. 
Previous Board cases are available on 
microfilm at the Board offices, and anyone 
wishing to research previous decisions 
may have access by appointment. 



Public Inquiries 



General inquiries concerning procedural 
matters on applications before the Board 
are handled by the Board Secretary. Inter- 
veners may also seek advice from members 
of the technical staff when preparing to 
participate in the hearing process. 



Copies of Board Decisions and Reports 
may be purchased by the public from the 
Ontario Government Bookstore, 880 Bay 
Street, Toronto. 



Board Members and Staff 

The Chairman and Board members are 
appointed by the Lieutenant Governor in 
Council. The present Chairman was ap- 
pointed in 1984 for a five year term. Board 
members are appointed for one to three 
year terms. Members bring a range of 
experience to the Board with backgrounds 
in law, engineering, economics, accounting 
and finance, or direct energy industry 
experience. 

There were 36 full time staff in fiscal 
1986-87, including Technical and Adminis- 
trative Support staff with special or tech- 
nical knowledge of matters related to 
Board hearings. Legal counsel and outside 
consultants may be engaged to conduct 
proceedings, advise or testify. 



29 



Appendix III: 

Organization Structure 

as at March 31, 1987 



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30 



H 



Appendix IV: 

Glossary of Terms 



Argument: 

Board Order: 

Board Recommendation: 

Bulk Power Rates: 
Buy/Sell Agreement: 



CMP: 



Commodity Charge: 



Contract Carriage: 



Demand Charge: 



Designated Gas Storage Area: 



Direct Sales: 



Gigajoule: 



Interrogatories: 



Intervention: 



The final step in a hearing, during which participants summarize their positions on 
various matters of concern based on the evidence adduced. 

A legal document directing the implementation of a Board decision. An order is binding 
on the indicated parties. 

Usually contained in a Board Report to a Minister or to the Lieutenant Governor in 
Council on Ontario Hydro or some other energy-related matter. Such recommendations 
are not binding. 

Wholesale electricity rates to municipalities and certain industrial customers of Ontario 
Hydro having an average annual power demand of 5,000 kilowatts or more. 

Arrangement whereby an end-user purchases gas from a producer and then sells it to 
the local distribution utility who comingles that gas with other supplies. The end-user 
then buys gas from the local utility in the usual manner. The difference between the 
price paid to the producer and the price received from the local utility minus any 
transportation costs accrues to the end-user. 

Competitive Marketing Program: a discount program offered by producers selling system 
gas to meet competitive situations by allowing the end-user/distribution utility to 
negotiate a reduced price that is then passed from the producers through TransCanada 
and the local utility to the end-user. 

The variable component of pipeline transportation tolls or gas sales rates designed to 
recover variable costs of providing service. 

Transportation service provided for the transport of gas not owned by the transporting 
pipeline company. See also T-SERVICE. 

The fixed component of pipeline transportation tolls or gas sales rates designed to 
recover fixed costs of providing service. 

A land area containing geological formations into which the Board may authorize a 
person to inject, store and remove gas. Injection of gas for storage into any geological 
formation outside of a designated gas storage area is prohibited under Section 20 of 
the Ontario Energy Board Act. 

Natural gas supply purchase arrangements transacted between producers and end- 
users at negotiated prices for which pipeline transportation arrangements must then be 
negotiated separately with TransCanada and the local distribution utility. 

A measure of energy content in fuel, a typical residential consumer of natural gas 
might use about 130 gigajoule (GJ) per year for household heating. (One GJ = 
approximately .95 Mcf of natural gas.) 

Written requests for the supply of additional information or clarification of information 
already received. 

Notice of intent to participate in hearings, stating the interest in the proceeding. The 
person or group is called an intervener. 



31 



Rate Base: The amount that a utility has invested in assets that are used and useful in providing 
service minus accumulated depreciation plus an allowance for working capital and an 
other items which the Board may determine. Rate base may also be net of accumulated 
deferred income taxes. 






Rate of Return on Common Equity: 



Utility income, after tax, expressed as a percentage of the amount of common equity 
approved for inclusion in the utility's capital structure. 



Rate of Return on Rate Base: The amount which a utility is allowed to earn expressed as a percentage of the rate 

base. Note that this return is not guaranteed to the utility. Rather, this is the return 
that the company has a reasonable opportunity to earn given forecast conditions. 



Revenue Requirement: 



The allowed expenses of the utility and the allowed return on rate base are added 
together to obtain the total amount which the utility must recover through rates in 
order to cover its costs of providing service. 



Test Year: A period of twelve consecutive months (usually the company's next full fiscal year) for 
which projections of costs, revenues, expenses and rate base are studied by the Board 
in order to set rates which will allow the utility the opportunity to earn a reasonable 
rate of return. 

T-Service: The gas transportation service offered by a pipeline company or distributor to transport 
gas owned by others. See also CONTRACT CARRIAGE. 



32